Everything You Need To Know About Alternative Finance.
Alternative finance is an extensive term. This term includes many different types of finance solutions. However, when understood, alternative finance can be very important in the growth of a business.
In this article, we will discuss in detail what alternative finance is all about and some different types of alternative finance. Most significantly, we will conclude this article by answering some of the most frequently asked questions you may have on this topic. Stay tuned and pay attention.
What Is Alternative Finance?
Alternative Finance has different types of definitions by different people. One of the most widely accepted definitions of alternative finance is that alternative finance is those financial channels and instruments that emerge outside the traditional financial system. By conventional financial system, we mean; regulated banks and capital markets.
Types Of Alternative Funding Solutions
There are numerous types of alternative finance products available. They have their merits and, equally, provide examples of the need they may be able to fulfill. Some examples of alternative funding solutions include the following;
- Small business loans
- Asset finance
- Invoice finance
- Property finance
- Stock finance
- Supply chain finance
- Crowdfunding
1. Small Business Loans
This business loan is exclusive for small businesses with a turnover below £6.5m and less than 50 employees. Small business loans are only available for small businesses to help them grow, especially in marketing and promotions of their services.
This loan is flexible, and you can choose a suitable repayment plan. As the name implies, less importance is usually placed on credit rating and trading history during the application process.
This loan aims to help small business owners scale up their businesses. It equally serves as a starting point, especially for those who do not have the capital needed to start or grow a business. Unsecured Business Loans are suitable for businesses looking for cash to grow and develop but do not want to part with equity.
2. Asset Finance
This alternative finance is suitable for large investments that are not at the point of investment affordable to a business. Still, they represent a solid investment in its future.
The financial terms of this asset finance are calculated differently and based on the value of the desired asset and the repayment duration. This makes this finance alternative suitable for businesses that want to split the cost of their asset into a more manageable repayment option.
In summary, asset finance is for businesses that want to major solely in assets more than the advertising and marketing cost of the business.
3. Invoice Finance
Invoice financing is suitable for businesses looking to free up internal capacity from chasing invoices, as lenders can take over this responsibly. In invoice finance, capital is raised against invoices that are currently awaiting payment, cash flow, and by extension, business growth can be maintained in a fast-paced trading environment.
4. Property Finance
This is equally a form of alternative finance. This is a suite of products that are based around the concept of securing capital against commercial properties such as offices, retail, industrial or leisure premises, or residential properties) with the view of developing the said property, building the said property, or purchasing the said property.
This alternative finance suits businesses looking to invest in commercial property and expand their portfolio or premises.
5. Stock Finance
This is a unique type of alternative finance. It sees finance available to a specific credit limit based on your organization’s size and credit score history.
The benefit of this stock finance is that funds can be requested and received at short notice. This allows businesses with a fast turnaround of high-value stock to buy a new stock quickly when it becomes available if they know they can shift the items quickly.
6. Supply Chain Financing
If your business has a poor credit history, supply chain financing is best for you, or if you are looking for a healthier cash flow, supply chain financing is the best alternative finance for your business. Benefits spread throughout the supply chain, too: suppliers can get paid more quickly, and buyers can extend their payment terms.
7. Crowdfunding
This is one of the essential types of alternative finance out there. Crowdfunding can help businesses and business owners scale their businesses efficiently. However, when using crowdfunding for your business, you must have checked every index and made sure that the business is sure to bring profit.
This is because crowdfunding means gathering funds from different persons and investors for the growth of your business. If the business or venture doesn’t succeed, you can incur much debt.
Consumer protection requirements are in place via FCA regulation, meaning resolution plans must be put in place to ensure loan repayments will continue even in the event of the collapse of the platform through which the loan was made (source). Reward crowdfunding exists too, but this is less applicable to traditional business needs.
You may have seen popular Kickstarter campaigns, most of which begin life as an idea and raise funds from the community to attempt to bring the concept to life. Suitable for businesses in fast-paced environments looking for funds to keep things moving while working capital is low or looking to take advantage of outstanding deals on new stock.
Note: Before choosing any of the above-mentioned alternative finance, conduct quality research. This will enable you to choose the one that suits you and your business at that level.
What is the meaning of alternative finance?
Alternative finance refers to financial channels, processes, and instruments that have emerged outside the traditional finance system, such as regulated banks and capital markets.
What is the role of alternative finance?
It gives you quick access to finance
Alternative lenders who often offer a more straightforward and speedier lending process as traditional lenders like banks may not be as well-equipped; there’s also less bureaucracy when going through alternative sources, ensuring a considerably smoother and more efficient process.
Conclusion
Alternative finance is very important. We have laid bare the types of alternative finance funding and answered some of the questions you may have in mind.
Feel free to ask your questions in the comments section. We shall respond swiftly!